Banks Unlikely to Cut Lending Rates Despite BoG’s Aggressive Rate Slash – Economist-Ghana
Despite the Bank of Ghana’s (BoG) bold decision to cut the policy rate by 300 basis points to 25 percent, commercial banks may not significantly lower their lending rates, says economist Professor Patrick Asuming. This move by the BoG, announced at its July Monetary Policy Committee (MPC) meeting, marks one of the sharpest rate cuts in recent years and is aimed at supporting economic recovery amid improved macroeconomic indicators and a sustained drop in inflation.
Professor Asuming points out that the high volume of non-performing loans (NPLs) and prevailing risk aversion within the banking sector will likely hinder the full transmission of the rate cut to borrowers. While the Ghana Reference Rate (GRR) — a benchmark for lending — may drop by about 120 basis points in response to the policy rate adjustment, the broader impact on commercial lending is expected to be limited.
He explained that although a 300 basis point cut in the policy rate typically translates into a proportional fall in the GRR, the final effect on borrowers’ interest rates depends on how banks interpret lending risks. “Banks may remain cautious,” he noted, adding that only highly creditworthy borrowers might benefit from notable reductions in their loan rates.
Additionally, Professor Asuming noted that the policy rate influences the interbank market, where reductions could indirectly push the GRR even lower. However, the extent to which this translates into meaningful lending rate cuts depends heavily on banks’ perception of credit risk and the continued presence of bad loans on their books.
BoG Governor Dr. Johnson Asiama emphasized that while the rate cut is intended to support economic activity, underlying financial risks remain. The central bank, he said, will continue to monitor economic and financial developments closely and is prepared to make further policy adjustments to maintain price stability and reinforce the country’s economic recovery.
Source: Citi newsroom